Intrinsic value of Healthcare Services Group - HCSG

Previous Close

$46.90

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$46.90

 
Intrinsic value

$38.53

 
Up/down potential

-18%

 
Rating

hold

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HCSG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.77
  9.00
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
Revenue, $m
  1,563
  1,704
  1,850
  2,003
  2,161
  2,326
  2,497
  2,675
  2,860
  3,052
  3,252
  3,460
  3,677
  3,902
  4,137
  4,381
  4,637
  4,903
  5,181
  5,471
  5,774
  6,091
  6,422
  6,768
  7,131
  7,510
  7,907
  8,323
  8,758
  9,215
  9,693
Variable operating expenses, $m
 
  1,311
  1,424
  1,541
  1,662
  1,789
  1,920
  2,057
  2,199
  2,346
  2,499
  2,655
  2,821
  2,994
  3,174
  3,361
  3,557
  3,761
  3,975
  4,197
  4,430
  4,673
  4,927
  5,193
  5,471
  5,762
  6,066
  6,385
  6,719
  7,069
  7,436
Fixed operating expenses, $m
 
  254
  261
  267
  274
  281
  288
  295
  302
  310
  317
  325
  334
  342
  350
  359
  368
  377
  387
  396
  406
  417
  427
  438
  449
  460
  471
  483
  495
  508
  520
Total operating expenses, $m
  1,445
  1,565
  1,685
  1,808
  1,936
  2,070
  2,208
  2,352
  2,501
  2,656
  2,816
  2,980
  3,155
  3,336
  3,524
  3,720
  3,925
  4,138
  4,362
  4,593
  4,836
  5,090
  5,354
  5,631
  5,920
  6,222
  6,537
  6,868
  7,214
  7,577
  7,956
Operating income, $m
  118
  138
  166
  195
  225
  257
  289
  324
  359
  397
  435
  480
  522
  567
  613
  661
  711
  764
  819
  877
  938
  1,001
  1,068
  1,138
  1,212
  1,289
  1,370
  1,455
  1,544
  1,638
  1,736
EBITDA, $m
  126
  146
  174
  203
  234
  266
  299
  333
  369
  407
  446
  487
  530
  574
  621
  670
  720
  774
  830
  888
  949
  1,014
  1,081
  1,152
  1,226
  1,304
  1,385
  1,471
  1,561
  1,656
  1,756
Interest expense (income), $m
  1
  0
  1
  1
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
Earnings before tax, $m
  120
  138
  165
  194
  223
  254
  286
  320
  355
  391
  429
  473
  514
  558
  603
  650
  699
  751
  805
  862
  921
  984
  1,049
  1,118
  1,190
  1,265
  1,344
  1,428
  1,515
  1,607
  1,704
Tax expense, $m
  43
  37
  45
  52
  60
  69
  77
  86
  96
  106
  116
  128
  139
  151
  163
  176
  189
  203
  217
  233
  249
  266
  283
  302
  321
  342
  363
  386
  409
  434
  460
Net income, $m
  77
  101
  121
  141
  163
  185
  209
  233
  259
  285
  313
  345
  376
  407
  440
  475
  511
  548
  588
  629
  673
  718
  766
  816
  868
  924
  981
  1,042
  1,106
  1,173
  1,244

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  92
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  528
  475
  516
  559
  603
  649
  697
  746
  798
  851
  907
  965
  1,026
  1,088
  1,154
  1,222
  1,293
  1,368
  1,445
  1,526
  1,611
  1,699
  1,791
  1,888
  1,989
  2,095
  2,206
  2,322
  2,443
  2,570
  2,704
Adjusted assets (=assets-cash), $m
  436
  475
  516
  559
  603
  649
  697
  746
  798
  851
  907
  965
  1,026
  1,088
  1,154
  1,222
  1,293
  1,368
  1,445
  1,526
  1,611
  1,699
  1,791
  1,888
  1,989
  2,095
  2,206
  2,322
  2,443
  2,570
  2,704
Revenue / Adjusted assets
  3.585
  3.587
  3.585
  3.583
  3.584
  3.584
  3.582
  3.586
  3.584
  3.586
  3.585
  3.585
  3.584
  3.586
  3.585
  3.585
  3.586
  3.584
  3.585
  3.585
  3.584
  3.585
  3.586
  3.585
  3.585
  3.585
  3.584
  3.584
  3.585
  3.586
  3.585
Average production assets, $m
  29
  31
  33
  36
  39
  42
  45
  48
  51
  55
  59
  62
  66
  70
  74
  79
  83
  88
  93
  98
  104
  110
  116
  122
  128
  135
  142
  150
  158
  166
  174
Working capital, $m
  314
  242
  263
  284
  307
  330
  355
  380
  406
  433
  462
  491
  522
  554
  587
  622
  658
  696
  736
  777
  820
  865
  912
  961
  1,013
  1,066
  1,123
  1,182
  1,244
  1,308
  1,376
Total debt, $m
  0
  17
  34
  53
  72
  92
  113
  134
  156
  180
  204
  229
  255
  282
  311
  340
  371
  403
  437
  472
  508
  547
  587
  628
  672
  718
  766
  816
  869
  924
  982
Total liabilities, $m
  190
  206
  223
  242
  261
  281
  302
  323
  345
  369
  393
  418
  444
  471
  500
  529
  560
  592
  626
  661
  697
  736
  776
  817
  861
  907
  955
  1,005
  1,058
  1,113
  1,171
Total equity, $m
  339
  269
  293
  317
  342
  368
  395
  423
  452
  483
  514
  547
  581
  617
  654
  693
  733
  775
  819
  865
  913
  963
  1,016
  1,070
  1,128
  1,188
  1,251
  1,316
  1,385
  1,457
  1,533
Total liabilities and equity, $m
  529
  475
  516
  559
  603
  649
  697
  746
  797
  852
  907
  965
  1,025
  1,088
  1,154
  1,222
  1,293
  1,367
  1,445
  1,526
  1,610
  1,699
  1,792
  1,887
  1,989
  2,095
  2,206
  2,321
  2,443
  2,570
  2,704
Debt-to-equity ratio
  0.000
  0.060
  0.120
  0.170
  0.210
  0.250
  0.290
  0.320
  0.350
  0.370
  0.400
  0.420
  0.440
  0.460
  0.470
  0.490
  0.510
  0.520
  0.530
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
Adjusted equity ratio
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  77
  101
  121
  141
  163
  185
  209
  233
  259
  285
  313
  345
  376
  407
  440
  475
  511
  548
  588
  629
  673
  718
  766
  816
  868
  924
  981
  1,042
  1,106
  1,173
  1,244
Depreciation, amort., depletion, $m
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
Funds from operations, $m
  -12
  109
  129
  150
  172
  194
  218
  243
  269
  296
  324
  352
  383
  415
  448
  483
  520
  558
  598
  640
  684
  730
  778
  829
  882
  938
  997
  1,059
  1,124
  1,192
  1,263
Change in working capital, $m
  -53
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Cash from operations, $m
  41
  87
  108
  128
  149
  171
  194
  218
  243
  269
  296
  323
  352
  383
  415
  448
  484
  520
  559
  599
  641
  685
  731
  780
  831
  885
  941
  1,000
  1,062
  1,127
  1,195
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
New CAPEX, $m
  -5
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
Cash from investing activities, $m
  -6
  -5
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Free cash flow, $m
  35
  82
  102
  122
  142
  164
  186
  210
  234
  259
  286
  312
  341
  371
  403
  436
  470
  506
  544
  583
  625
  668
  713
  761
  811
  864
  919
  977
  1,037
  1,101
  1,168
Issuance/(repayment) of debt, $m
  0
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
Issuance/(repurchase) of shares, $m
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  9
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
Total cash flow (excl. dividends), $m
  44
  99
  120
  140
  161
  184
  207
  231
  256
  283
  310
  338
  367
  399
  431
  465
  501
  538
  577
  618
  661
  706
  753
  803
  855
  909
  967
  1,027
  1,090
  1,156
  1,226
Retained Cash Flow (-), $m
  -43
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
Prev. year cash balance distribution, $m
 
  92
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  168
  96
  116
  136
  158
  180
  203
  227
  252
  279
  305
  333
  363
  394
  427
  461
  496
  534
  573
  613
  656
  701
  748
  798
  849
  904
  961
  1,021
  1,084
  1,151
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  161
  88
  101
  112
  122
  131
  137
  142
  145
  146
  145
  142
  138
  132
  125
  117
  108
  98
  88
  78
  68
  58
  49
  41
  33
  26
  21
  16
  12
  9
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Healthcare Services Group, Inc. provides management, administrative, and operating services to the housekeeping, laundry, linen, facility maintenance, and dietary service departments to nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates through two segments, Housekeeping and Dietary. The Housekeeping segment engages in the cleaning, disinfecting, and sanitizing of patient rooms and common areas of client’s facility, as well as laundering and processing of the personal clothing belonging to the facility’s patients. This segment also provides laundry and linen services; and maintenance services comprising repair and maintenance of laundry equipment, plumbing, and electrical systems, and carpentry and painting services, as well as distributes laundry equipment. The Dietary segment is involved in the food purchasing; meal preparation; and the provision of dietician consulting services, which include development of a menu that meets the patient’s dietary needs. As of December 31, 2015, the company provided its services to 3,500 facilities in 48 states. Healthcare Services Group, Inc. was founded in 1976 and is based in Bensalem, Pennsylvania.

FINANCIAL RATIOS  of  Healthcare Services Group (HCSG)

Valuation Ratios
P/E Ratio 44.2
Price to Sales 2.2
Price to Book 10
Price to Tangible Book
Price to Cash Flow 83
Price to Free Cash Flow 94.6
Growth Rates
Sales Growth Rate 8.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 121
Management Effectiveness
Return On Assets 15.4%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 24.3%
Ret/ On T. Cap. - 3 Yr. Avg. 17.5%
Return On Equity 24.3%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 3.1
Profitability Ratios
Gross Margin 14.3%
Gross Margin - 3 Yr. Avg. 13%
EBITDA Margin 8.3%
EBITDA Margin - 3 Yr. Avg. 6%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 7.7%
Pre-Tax Margin - 3 Yr. Avg. 5.5%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 35.8%
Eff/ Tax Rate - 3 Yr. Avg. 34.2%
Payout Ratio 68.8%

HCSG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCSG stock intrinsic value calculation we used $1563 million for the last fiscal year's total revenue generated by Healthcare Services Group. The default revenue input number comes from 2016 income statement of Healthcare Services Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HCSG stock valuation model: a) initial revenue growth rate of 9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HCSG is calculated based on our internal credit rating of Healthcare Services Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Healthcare Services Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HCSG stock the variable cost ratio is equal to 77%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $248 million in the base year in the intrinsic value calculation for HCSG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Healthcare Services Group.

Corporate tax rate of 27% is the nominal tax rate for Healthcare Services Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HCSG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HCSG are equal to 1.8%.

Life of production assets of 9.1 years is the average useful life of capital assets used in Healthcare Services Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HCSG is equal to 14.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $339 million for Healthcare Services Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 72.871 million for Healthcare Services Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Healthcare Services Group at the current share price and the inputted number of shares is $3.4 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
SERV ServiceMaster 37.16 prem.  prem.
ABM ABM Industries 41.73 prem.  prem.
CTAS Cintas 121.74 prem.  prem.

COMPANY NEWS

▶ Analyzing Healthcare Services Group's Steady Charge   [Apr-24-17 04:47PM  Investopedia]
▶ Healthcare Services beats 1Q profit forecasts   [Apr-11-17 04:26PM  Associated Press]
▶ Healthcare Services meets 4Q profit forecasts   [Feb-07-17 05:51PM  Associated Press]
Stock chart of HCSG Financial statements of HCSG Annual reports of HCSG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.